During the second quarter, Francis Chou (Trades, Portfolio) of Chou Associates Management added 48.11% and 38.77% to its positions in Valeant Pharmaceuticals International Inc. (NYSE:VRX) and Sears Holdings Corp. (NASDAQ:SHLD). As the stock prices continue to decline, the companies offer investing opportunities. The above transactions align with Chou’s strategy of investing in companies with depressed prices.

Established in 1986, the Chou Associates Fund seeks long-term capital growth by investing in undervalued U.S. and Canadian securities. As mentioned in its recent prospectus, the fund analyzes the company’s balance sheet and common financial metrics: profitability, growth potential and intrinsic value. While the manager has a limited number of positions, Chou reduces the portfolio risk by investing in companies with high margins of safety.

In the transaction, Sears sold 235 Sears- and Kmart-branded stores to Seritage along with Sears’ 50 percent interests in joint ventures with each of Simon Property Group, Inc., General Growth Properties, Inc. and The Macerich Company, which together, hold an additional 31 Sears Holdings properties. Based on our rough estimate, this represented less than 25% of the company’s real estate assets.

Resolute Forest Products (NYSE:RFP) is primarily involved in newsprints, specialty papers, wood products and market pulp. As the downturn in global commodities intensified, RFP was not spared, hitting all four of the company’s business segments. Management has concentrated on lowering the cost of every segment but this wasn’t enough to compensate for the deterioration of prices in their respective markets.

It is hard for us to believe that RFP is trading as low as $4 per share. At $4 per share it means the market capitalization of the company is selling for less than US$400 million dollars. The company has consolidated sales of close to $4 billion and in each of its major business segments, it is a global leader. It is the biggest volume producer of wood products east of the Rockies, the third largest in North America for market pulp, the number one producer of newsprint in the world and the largest producer in North America of uncoated mechanical paper and an emerging tissue producer. With the exception of the wood products segment, which has revenues of approximately $600 million, the other three segments each have revenues of approximately $1 billion. Each of the four business segments could easily fetch at least $400 million in a normal market.

After the distribution of $0.07, the net asset value per unit (“NAVPU”) of a Series A unit of Chou Associates Fund at December 31, 2015 was $115.50 compared to $124.19 at December 31, 2014, a decrease of 7.0%; during the same period, the S&P 500 Total Return Index increased 20.7% in Canadian dollars. In $U.S., a Series A unit of Chou Associates Fund decreased 22.0% while the S&P 500 Total Return Index returned 1.4%.

Update: Chou refiled his first-quarter 13F on May 18. The position in Westmoreland Coal Co., previously reported as representing 35.4% of his portfolio, did not appear on the new 13F filing. - GuruFocus editorial

We had a great success for 2016 GuruFocus Value Conference last week. More than 140 investors from 14 countries attended the conference. We had 9 great speakers and our attendees thoroughly enjoyed it. 92% of the attendees indicated that they are likely to attend GuruFocus Value Conference again in 2017.

Francis Chou (Trades, Portfolio)’s fourth-quarter portfolio activity consisted of three transactions, which seems light for an investment guru. Nevertheless, while that is half the volume of his third-quarter activity, it is triple his activity of the first and second quarters.

Chou’s most noteworthy fourth-quarter trade was the nearly 10% increase in his stake in Resolute Forest Products Inc. (NYSE:RFP), a Montreal-based pulp and paper products provider. Chou purchased 423,691 shares for an average price of $8.13 per share. The transaction had a 1.1% impact on Chou’s portfolio.

Francis Chou (Trades, Portfolio), the fund manager of Chou America Mutual Funds, has been managing the Chou Funds in Canada since 1986. The investment process followed in selecting equity investments for the funds is a value-oriented approach to investing. This involves a detailed analysis of the strengths of individual companies, with much less emphasis on short-term market factors.

The following are the stocks Chou holds that are trading with lowest P/E.

Francis Chou (Trades, Portfolio)'s rise to guru status is as amazing as it is inspiring. His first victory after coming to Canada with $200 in cash and without a college degree was to get a job at Bell Canada as a telephone repairman. He ended up reading the "Intelligent Investor" and other Graham works that led him to start an investment club with six of his colleagues at Bell. The telephone repairman started compounding the initial $51,000 at 13.6% per year blowing away the Standard & Poor's 500’s 6.8% gains per year over the same period. See his Gurufocus profile page to read more about his amazing story and to check out his entire portfolio. He has been managing Chou Funds in Canada since 1986.

His latest interesting investment is in Ascent Capital Group (NASDAQ:ASCMA). Ascent is a holding company that owns Monitronics, a home security alarm-monitoring company. This is quite a hot sector, and it is unusual to see a value investor like Chou venture out there. It certainly caught my interest, and that is why I checked out what may be attracting Chou to Monotronics. For one thing, the company got decimated YTD which raises the odds there is some value to be found there:

Francis Chou (Trades, Portfolio)’s Chou Associates Fund has been quite successful in its value-oriented approach to investing. Last year, at a time when lower oil prices were taking a toll on many investors, the Chou Associates Fund recorded returns exceeding 12%. In the years preceding 2014, the Fund’s returns were double, even three times that.

Chou made half a dozen deals in the third quarter, most involving additions to existing stakes, but his most noteworthy third-quarter transaction was his reduction of his stake in Nokia Oyj (NYSE:NOK), a Finland-based communications and information technology company.

Francis Chou (Trades, Portfolio) doubled one position and sold out of another in a second quarter that had otherwise light investment activity at Chou Associates Management.

Chou is a value investor who buys low-priced and typically out-of-favor companies and who was named Morningstar’s Fund Manager of the decade in 2004. His Canada-based firm manages about $650 million and entered a period of underperformance in the past five years while the market soared, returning 9.5% in U.S. dollars versus 17.3% for the S&P 500 compounded annually. In the year ended June 30, the fund fell 8% while the index gained 7.4%, and in the past 15 years, it returned 11% compounded annually, versus 4.4% for the S&P.

Bruce Berkowitz (Trades, Portfolio), founder and managing member of Fairholme Capital Management, did not see opportunities to invest in new stocks during the first quarter, and instead sold one stock and trimmed his position in eight others.

The investor runs a concentrated portfolio with 17 stocks, believing that over-diversification can lead to mediocre results.

As we have indicated before, we believe that Sears Holdings (SHLD) is a misunderstood story. There are many moving parts but we believe Sears Holdings’ intrinsic value lies in its real estate assets. It also has other valuable assets such as Kenmore, Craftsman and Diehard. Being a traditional department store has become a tough business during the last decade but, according to management, Sears is transitioning its historic focus on running a brick and mortar department store into a business that provides and delivers value by serving its members in the manner most convenient for them: whether in store, at home or through digital devices.

The value of its real estate allows Eddie Lampert, the controlling shareholder and CEO, the time and money to effect the changes. What Lampert is doing is the right thing to do, considering the possible outcomes – if it works, it’ll be a multi-bagger; if the transformation does not work out as expected, we believe the real estate values are high enough that we would not lose money in our investment at current prices after netting out all liabilities. If real estate was the only play from Lampert’s viewpoint, it seems that he would have liquidated the company a long time ago.

Recent correction in oil prices have taken a toll on ChicagoBridge & Iron Company's (NYSE:CBI) share prices and the stock has corrected ~50% from 2014 highs. However, according to many analysts, this correction provides a good opportunity to buy the stock. In his recent report, Jefferies analyst Luke Folta reiterated his buy opinion on the company. He considers the stock a bargain at current levels and has a price target of $75 on the stock. He believes divesture of assets and restructuring could generate more that $100 million in cash flow for the company in 2015 and 2016 which could be used towards stock buy backs.

Another analyst, John B. Rogers of D.A. Davidson, is also bullish on the stock and has a $70 price target. He believes that with sustained earnings and cash flow, let alone growth, the stock can appreciate substaintially from the current level. He is optimistic on the company's backlog growth due to “LNG export facilities, new gas fired power plants, and other energy/downstream infrastructure that could be awarded in 2015.”

During the 12-month reporting period that ended on December 31, 2014, the Chou Opportunity Fund (the “Fund”) was up 4.88%, while the S&P 500 Total Return Index (the “S&P 500”) generated a return of 13.69% during the same period. The Fund’s past performance is not necessarily an indication of how the Fund will perform in the future.

Francis Chou immigrated to Canada in 1976 with $200 to his name. Without a college degree, Chou worked as a telephone repairman for Bell Canada, then formed an investment club with co-workers after reading about Benjamin Graham's teachings. Today, Chou is the fund manager of Chou Mutual Funds. Below are his answers to questions from GuruFocus readers.

Commodities have been in a severe bear market for the last three years. What are your thoughts on the valuation of base metal and energy companies at the moment?

In January 2014, the U.S. stock market benchmark S&P 500 lost 3.36% after an excellent 2013. The enthusiasm went back as the market gained 4.31% over February. In March, it went up only 0.69%. The market benchmark S&P 500 closed at 1890.90 on April 2, 2014, which is the new record high. What is the situation in the other parts of the world? In March, the key indexes in Europe returned negative. Germany’s DAX index declined 1.40%. France’s CAC-40 index lost 0.38%. The FTSE 100 index was down 3.10%. Stock market performances in Asia were weak too. Japan’s NIKKEI 225 moderately decreased 0.09%. Hong Kong’s Hang Seng Index was down 3.00% and China’s SSE Composite index was down 1.12% due to the weaker-than-expected Chinese economic data.

Seth Klarman has returned $4 billion to clients at 2013 year-end due to lack of ideas and has 40% of the portfolio in cash. In his 2013 letter to investors, he mentioned the Continuing Problems in Europe, “Europe isn’t fixed either, but you wouldn’t be able to tell that from investor sentiment. One sell-side analyst recently declared that ‘the recovery is here,’ a sharp reversal from his view in July 2012 that Greece had a 90% chance of leaving the Euro by the end of 2013. Greek government bond prices have nearly quintupled in price from the mid-2012 lows. Yet, despite six years of painful structural adjustments, Greece’s government debt-to-GDP ratio currently stands at 157%, up from 105% in 2008. Germany’s own government debt-to-GDP ratio stands at 81%, up from 65% in 2008. That doesn’t look fixed to us. The EU credit rating was recently reduced by S&P. European unemployment remains stubbornly above 12%. Not fixed.

As with all of the Chou Associates Management Inc.’s funds, equities for the Chou RRSP Fund (Trades, Portfolio) are selected based on a company’s “balance sheet, cash flow characteristics, profitability, industry position, special strengths, future growth potential and management ability.” They are purchased if they sell at an acceptable margin of safety, and held for the long term.

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